Research Insights: The Interplay of Sustainability and Accounting

Recently, a transformation in the regulatory landscape is the SEC’s proposed rule changes in 2022 that would require more comprehensive climate-related disclosures. If these changes are implemented, the auditor’s role could expand significantly, requiring them to verify and assure a broader array of sustainability metrics. This raises an interesting question about the dynamics between auditors' sustainability focus and their clients' reporting activities. 

Manlu Liu, professor, and Jing Tang, assistant professor, both in the department of MIS, marketing and analytics, along with three co-authors, wrote “Auditor sustainability focus and client sustainability reporting,” forthcoming in the journal Accounting, Organizations and Society. Liu and her co-authors studied 12 main auditing firms and their clients. They measured auditors’ sustainability focus in 10 years of auditors’ tweets on Twitter, and clients’ sustainability reporting in 10 years of 10-K files. This study of a huge amount of unstructured data was interdisciplinary, including accounting, auditing, business analytics, and AI.

The findings indicate a positive association between auditors' sustainability focus and the sustainability reporting by their clients. This relationship is observable in both the scope of sustainability disclosures and in specific social and governance activities up to two years into the future. Liu and her co-authors highlight the potential for auditors to influence corporate reporting practices significantly, promoting greater transparency and reliability in sustainability disclosures, which are critical for investors and policy-making.

View paper in Accounting, Organizations and Society (in press), “Auditor sustainability focus and client sustainability reporting”.